Questions & Answers- 2012 Rate Case

Q: Why is San Jose Water Company (SJWC) proposing a rate increase for 2013?

A: SJWC’s proposed rate change of 21.5 percent reflects escalating operating costs and significant water system replacement costs for mains, tanks, and wells that allow the company to continue providing safe and reliable water service. Safe and reliable water service is essential for maintaining public health, fire fighting capability, and economic prosperity, all things that contribute to the quality of life we enjoy.

Q: How old is SJWC’s water system?

A: SJWC has been providing water service since 1866. Much of the water system was constructed more than 50 years ago and has reached the end of its useful life. In order to protect public health and safety, and to deliver safe and reliable water service, SJWC must continue to replace water system components rather than waiting until failure occurs.

Q: Why do I have to pay more for using less water?

A: Generally speaking, the total costs of providing water service, delivering the water to your tap, and assuring adequate fire protection can be divided into two components: 1) Fixed costs, and 2) Variable costs. Variable costs are those that change in the short term due to increases or decreases in water usage. They include the costs of power used for pumping water from the underground and for moving water throughout the water system, the cost incurred by the utility for purchasing water from its wholesaler, and groundwater extraction fees incurred when water is pumped from the underground. Fixed costs are all other costs such as the cost of water pumping facilities, water storage facilities, other equipment, and the piping necessary to deliver water service and fire protection. Fixed costs do not change with the level of water usage.

The water utility industry is the most capital intensive. It is very expensive to install new water mains, build new tanks, and drill new wells, and therefore SJWC as well as other water retailers have a high level of fixed costs. Recently the variable proportion of our costs has also been rapidly increasing. Unfortunately, during times when water sales are declining due to conservation efforts, fixed costs will still have to be recovered to maintain safe and reliable water service. Thus, the fixed amount of costs will have to be spread over a lower number of projected sales units, resulting in a higher per unit rate. Depending on your actual water usage, this may not necessarily result in a higher total water bill.

Q: Can’t SJWC reduce costs instead of raising rates?

A: SJWC works hard to provide the highest quality water service at the lowest possible cost. Water utility costs are escalating rapidly due to increasing investments needed to replace mains, tanks and wells, more stringent water quality regulations, and increasing staffing and employee benefit costs. A growing population, increasing demand for water supply, unreliable supplies, and an aging water system are challenges facing all water utilities.

Q: How have costs increased compared to past years?

A: Water system replacement costs have more than doubled in the past 5 years. Staffing costs to deal with new Sarbanes-Oxley, Securities and Exchange Commission, and water quality regulations have risen almost 50 percent in the past 5 years.

Q: What has SJWC done to keep rates low?

A: SJWC has an excellent track record of operating an efficient utility. Over the last five years, SJWC’s operating costs (including operations, maintenance, purchased power, and administrative expenses), as a percentage of overall costs, have decreased. The number of customers served per employee has remained relatively stable over the last 20 years. The company’s unaccounted for water (volume loss through leaks, theft, and water quality activities) of less than 7 percent remains one of the industry’s lowest.

Q: Where does my dollar go?

A: About half of every dollar received from customers goes to cover costs that are beyond the control of SJWC. These include water supply costs from the Santa Clara Valley Water District (36 cents) and payments of federal, state, and local taxes (9 cents). The remaining 55 cents funds system improvements (21 cents), operating costs (25 cents), and rate of return (9 cents).

Q: How affordable is your water rate?

A: A widely used benchmark for affordability is published by the US Environmental Protection Agency. EPA studies show that annual water bills less than 2.5 percent of median household incomes are considered affordable. SJWC’s current average monthly bill is approximately $68 and this represents slightly less than 1 percent of the median household income in Santa Clara Valley. The proposed rate change of 21.5 percent, if approved, would increase the monthly bill to approximately $82. On an annual basis, this represents approximately 1.2 percent of San Jose’s median household income.

U.S. Census Bureau, 2010 Median Household Income for San Jose, $83,944

Q: How can SJWC help customers manage their water bills?

A: SJWC offers a comprehensive water conservation program to help customers use water more efficiently. We have informational brochures and offer free water audits to all customers. If you choose, a trained water inspector will visit your home and check for leaks, evaluate indoor and outdoor usage, and make recommendations on ways to use water more efficiently. Additionally, SJWC offers a Water Rate Assistance Program (WRAP) for qualified low income customers. The WRAP provides a 15 percent discount on the total water bill to customers who qualify.

Q: What is the process for approving this rate increase?

A: First, it is important to note that this is only a proposed rate increase that will be reviewed by the California Public Utilities Commission (Commission) before a final decision on any increase is rendered. The Commission’s Division of Ratepayer Advocates (DRA) and its staff of engineers, auditors, and other professionals will closely review the application and submit its independent analysis and recommendations for the Commission’s consideration. Evidentiary hearings may be held before an Administrative Law Judge to further present testimony from DRA and SJWC. After hearing all evidence, the Administrative Law Judge will issue a final decision. Once a final decision is rendered, the new rates will be effective on or about January 1, 2013.

Q: Who can I contact to express my concerns or submit public comments?

A: You may contact the Public Advisors Office of the California Public Utilities Commission (Commission). Please contact the Commission at: